New data showed many small businesses accumulated more debt. Statistics from a federal loan guarantee program reveal approved applications surged by 34% compared to the previous year, according to Blacklock’s Reporter.. Closed store signSource CBC .“This significant increase in lending can be attributed to eased COVID-19 restrictions and the winding down of emergency response business support programs relative to the previous year,” said a department of Industry report SME Profile: Canada Small Business Financing Program Borrowers. .Last year, the total value of loans supported by taxpayers and given to small businesses reached $1.23 billion, a 41% increase over the previous year..Loans were approved under the Canada Small Business Financing Act. The program guarantees loans up to $1.15 million with additional $150,000 lines of credit. Loans are charged at prime plus 3%, currently the equivalent of 9.7%, with an 11.7% charge on lines of credit..The average loan amount was $246,507, 5% higher than the previous year..“It is expected this amount will continue to increase,” said Program Borrowers..“The flexibility to charge a higher interest rate for the line of credit will ensure financial institutions offer this new product option to their small business clients,” the department of Finance wrote in a Regulatory Impact Analysis Statement last July 6. .“Although borrowers may be paying a much higher interest rate, they would be getting access to much needed flexible financing that would otherwise be unavailable.”.Most small business operators, more than 70%, rely on personal savings or family loans, by official estimates. The Canada Small Business program guarantees 85% of eligible small business loans approved through banks and credit unions. Borrowers pay a 2% registration fee and a 1.5% annual registration fee..The department of Industry to date has not disclosed the latest default rate under the program. Loan defaults after the 2008 financial panic cost taxpayers $176.4 million..An expected recession this year will “hurt small businesses significantly” former federal budget officer Kevin Page earlier testified at the Senate Banking committee. .“It’s going to hurt small businesses significantly because with higher interest rates, people are not going to want to use credit,” said Page..“With the growth slowdown and the change in financial conditions, small business is going to get hurt. That is the price we have to pay.”.The Bank of Canada Governor Tiff Macklem predicted there might be a recession..“We don’t have a crystal ball,” Macklem told the Commons Finance committee on February 16..“You say ‘recession,’ they think big job losses, very, very painful. We are expecting growth to be around zero. That does mean we could have two or three quarters of small negative growth.”.“Technically, economists would call that a recession,” said Macklem. .“It’s not going to feel great.”
